In my next installment I want to give my reasons for writing this and a brief overview of where things stand now. As I re-read what I wrote last year all of the major points remain the same- only some numbers may have changed. Hopefully, this installment will give you a better insight as to some of the inner workings that are shaping the landscape we are seeing now.

I am hoping that this book will help anyone who wants to invest wisely to know what they are up against and to enlighten them to what actions they may be able to take to protect themselves from the misinformation and manipulations that are taking place daily in the “markets”. I use the “ “ in markets because we have not had real markets for at least decades. A real market would be where supply and demand between buyers and sellers is determined in each and every trade. While many may argue that is what happens with each trade today, they would be greatly mistaken. The Fed, by buying bonds and stocks have taken price discovery out of the equation. This is why nothing seems to make any sense anymore.

As I wrote earlier, I started paying full-time attention to the markets in 1989. In 1987, then Fed President Alan Greenspan was the first Fed President that I am aware of to make a major move to stabilize markets after the largest one-day drop (in percentage terms) in the DOW. This also was the impetus for setting up the Working Group on Financial Markets also known as The Plunge Protection Team that has done nothing but get larger and larger over time. I have only read about this because I was not paying attention at the time. This was the first blow to free markets- at least that was well known.

Early on, in the late 1990s, the central banks got overly involved again in the markets when Long Term Capital Management failed, and it threatened the entire financial system- or so they told us. They were bailed out with around $2 Billion- which today would be a rounding error. In the 2000-2002 stock “market” meltdown the fun really started when the Fed started lowering interest rates to stimulate the “markets”. Keep in mind that even though the Fed and other central banks can control overnight lending rates they actually have to intervene (conjure up cash out of nowhere and buy bonds) to actually have an impact on yields and bond prices. This action alone distorts virtually all prices for stocks, bonds, real estate, etc. because we are in a debt-based system where most assets derive their value from the debt “market”.

This action led to lower bond yields and higher bond prices. It also stimulated the “markets” to new highs from 2003-2008. Since the boom was built artificially it collapsed in 2008 and most of the gains from 2003-2008 were wiped out in a matter of weeks. At the DOW low of 6000 the Fed stepped in and has been manipulating the stock and bond “markets” in ever increasing amounts ever since. Keep in mind that each intervention has to be exponentially larger than the last one to get the same result. Also keep in mind that this action is HIGHLY inflationary. It is surprising to me at how long this took to play out.

The sad part to me is that so many people have been lulled into a sense of security because of the actions of the central banks and have been conditioned to think that during every downturn the central banks will be there to turn the tide and keep prices rising. I believe that this will be the undoing of many “investors” as we move forward. What seems natural- because it has been taking place for so long- is actually TOTALLY UNNATURAL. The actions of central banks have destroyed any price discovery and has led to massive chasms between VALUE and PRICE for virtually all financial assets.

My take on this is that stocks, bonds and Real Estate are likely to collapse in price in the near future. I also believe that their VALUE will be exposed as being FAR less than anyone imagines at this time. At the same time, other assets (mainly hard assets) and precious metals, in particular, will likely surprise most people when their true VALUE is exposed. My friend, Andy Schectman of Miles Franklin I believe has said it best- The banks and central banks are using price as a distraction to keep the masses away from purchasing gold and silver as they buy it all up themselves.

I believe that we are moving into a massive inflationary event here in the USA and probably in the entire developed world. I believe it will likely be the worst here in the USA simply because we are the most indebted nation that has ever existed and the source of our power (the US dollar and our military) are failing us as we speak. The BRICS (Brazil, Russia, India, China and South Africa) are challenging the USA and their allies and they are picking up steam as most of the world is tired of the US meddling in their affairs and starting wars all over the globe. They have also seen the use of the US Dollar as a weapon and are now starting to trade in local currencies and setting up new payment systems to bypass the use of the dollar in settling most trades worldwide. The reason this is so significant is that the use of the dollar in trade settlements is what has created the great demand for dollars and has allowed us to conjure up an almost unlimited amount without destroying its perceived value. I say perceived value because it actually has no value because it is actually a liability- not an asset. This is a FAR cry from when you could trade your paper for a real asset- GOLD.

My biggest fear right now is that the entire debt-based system is likely to implode upon itself and the repercussions of that cannot be overstated. They have “printed” us to death. It appears now that the more cash that gets conjured up the higher prices people pay are going to go. This tells me we are VERY near the end of this system where it is likely that NO DEBT BASED ASSET will have any value- or at least VERY LITTLE. The biggest problem is that EVERYTHING is built on this debt. It just could be the greatest investors in the future are those that lose the least in what is coming next.

One large problem is that even good companies could be destroyed by a debt implosion. Being over-indebted is likely the greatest risk that we face going forward. Obviously, if bonds get defaulted on those unsecured creditors will expect to be wiped out. This would be the case for ALL bonds. With corporate bonds many new “investors” are likely unaware that an over-indebted company that defaults on its debt, the first loser is the common shareholder. That would likely mean that if you bought the stock and paid no attention to the balance sheet and the bonds were defaulted on you would be wiped out with a 100% LOSS.

What would real estate look like with little or no access to credit or credit at rates FAR higher than they currently are? Home price affordability is at an all-time low already and it appears that collapse has just begun. This is in addition to the rising defaults in the commercial real estate sector as higher interest rates and increasing vacancy rates are killing that space. As the economy is contracting and interest rates are rising this is a toxic combination for real estate overall but for commercial real estate in particular. Real Estate is a regional industry so even though the major move may be down there may be places that buck the trend and continue to rise because of their location and surroundings. The bottom line here is that real estate is in a bubble. How do I know? When the average family, earning an average income, can’t buy an average home you have a bubble.

Keep in mind that we are “printing up” money right now to pay interest on our debt, retire old debt, funding current bills on and off-budget for the Federal Government and sending billions to cities and states that are in great economic peril.

Many companies have borrowed FAR beyond their ability to repay but as rates continued lower the costs remained manageable. Now that tide has turned and as Warren Buffett says- When the tide goes out you find out who has been swimming naked. My guess is probably FAR more than we imagined!

One of the most well-known quotes, particularly to those who have been investing for any period of time, is that “markets can remain irrational for far longer than you can remain solvent”. I believe that we can see that with the central banks intervening the period of irrationality has gone on FAR longer than it normally would have. Another Warren Buffett quote that should be remembered by those looking to successfully invest is that “Price is what you pay, value is what you get”. In the past few years none of the traditional metrics have been at all important in determining whether a certain investment will perform well- or not. In a normally functioning market, you would be able to look at cash flows, debt-to-equity ratios, price earnings ratios and determine if a particular stock would be a good fit in your portfolio. Of course, other things would play a part like dividends, industry, etc.

With bonds, you could look at the risk you are taking and determine if the interest rate you are receiving is adequately compensating you for the risk you are taking. With central banks buying particularly sovereign bonds the traditional valuations are stood on their head. In some cases, some of the most risky sovereign bonds had yields that were less than US Treasuries, which a few years ago were considered to be extremely safe. This could only happen with central banks buying up the lower rated bonds which would drive the price up and yields down. If that intervention was to stop or even decrease the yields could spike and the price of the bonds could collapse. You can see why the interventions need to keep growing exponentially. New bonds are issued for current spending, current debt payments must be made, and maturing bonds replaced with new ones.

Since the central banks have become a third party that has entered the scene it seems that all of these metrics can be thrown out the window.

I have asked the question many times if the hedge fund managers all of a sudden forgot how to invest. In the past they were the titans of finance and in the past 15 years or so have had mostly lackluster returns. It occurred to me that all of their “genius” was tied to making bets large enough that they could move the markets and virtually remove risk of loss for themselves- at least in the short-term. So, what changed? A bigger sheriff rode into town- Central Banks. They are overriding the pricing power of the former manipulators.

This is, in my opinion, what is so dangerous about this current situation. The economy has been collapsing since at least 2008 when, if allowed to play out, would have likely purged the system of all the dead weight and we would now likely be on a way to a sustainable recovery. Instead, the money “printers” bailed out Zombie companies, bailed out the banks, and “printed” tens of trillions of dollars to pretend that all was ok. This is eerily similar to Weimar Germany, Venezuela, Zimbabwe, Argentina, and others. The one thing they all had in common was the conjuring up of cash to pretend that they were still prosperous and solvent when neither was actually true. This type of action has led to a collapsing currency 100% of the time throughout history. Many believe that “it could never happen here”. I guess those folks believe that economic laws apply everywhere but here in the USA.

With what has taken place in the past 20 years or so and the value of the dollar holding up pretty well while being “printed” to oblivion, I can’t say that I am surprised that many- particularly younger people may think that way. Too bad history has a sad ending- particularly for those who are not prepared. Another fun fact- in terms of gold the US dollar has LOST 98%+ of its purchasing power vs. gold. In 1971 gold was $35.00 per ounce. In 2023 as I write this in April it is $2010.00. Do the math! This is with major banks and central banks suppressing the price. When the boot is taken off the neck of the gold price it will likely be a sight to behold.

A couple of examples of how the price of gold may react if the dollar loses the little purchasing power it has against gold. In Weimar Germany an ounce of gold in January 1919 was 170 Marks. By January 1922 it was 3976 Marks, by January 1923 it was 372,500 Marks. By October 2, 1923 it was 6.6 BILLION Marks, by October 30, 1923 it was 1.3 TRILLION Marks and by November 5,2023 8.7 TRILLION Marks for ONE OUNCE OF GOLD. This is how gold protects you during a currency collapse. The gold doesn’t change but the purchasing power of the currency collapsed. In Argentina- in a less stunning manner but happening for the same reasons gold has moved from 250 Pesos in 1999 to 444,000 Pesos in 2023. As I write this an ounce of gold is over 272,500 Yen in Japan.

I have written many times that gold should be $20,000.00 per ounce RIGHT NOW. This would be based upon how much currency has been “printed”. This conjured up cash doesn’t just allow those “in charge” to manipulate prices higher for stocks and bonds but it also allows them to repress the prices they want suppressed particularly gold and silver. They do this mainly to give the illusion that the US dollar is strong. Economists throughout history have looked at what gold was trading for and could measure how well the purchasing power of said currency was holding up. To give the illusion of a strong dollar they compare it to inferior currencies- which are falling in value faster than the dollar to give the illusion of strength that way. I am sure there are millions wondering why, if the dollar really is so strong, why are prices rising uncontrollably right now? Bread is bread, gas is gas- it doesn’t change but the purchasing power of the dollar does.

To keep the price of gold and silver down major banks- likely at the behest of central banks (the major banks OWN the Fed) “print up” paper contracts that masquerade as real gold and silver. These paper contracts are sold into the market in massive amounts- particularly when the metals hit certain points where they may break out. This fake selling also prompts computer algorithms to sell and knocks the price down further. This is called naked shorting or in a more easily understandable way to put it- they are selling something that they don’t own! If you or I were to do that we would be in jail for a long time.

Many have asked me why I would want to own something that is so manipulated. I have a simple answer. Every fraud has its own demise built in. This one allows me to stick to the #1 rule of investing. Buy Low- Sell High. It is important that, if you are investing for the long-term that you don’t let the paper games shake you out of a trade that you have high conviction in. This would go for all assets not just the metals I am discussing now.

I believe that one of the main obstacles that we all have now is recency bias. I just got a glossy sales pitch showing me the “great performance” of 60/40 portfolios over the last 50 years. I can’t argue that the portfolio didn’t work. As a matter of fact, up until late 2008 my strategy was similar. What I can argue is that the economic realities that were in place for the last 20 years or so are now changing and that anyone who thinks that assets will perform as they have in the past are likely greatly mistaken.

First of all, we had a 40-year bull “market” in bonds which appears to be at an end. This was a MAJOR tailwind not only for bonds but also for stocks and any asset that many borrow to own. Rising rates will create a headwind for these assets today.

Rising rates are not only a problem for asset prices but also are a major obstacle for businesses- not just the ones that are over-indebted but for all. It is just that the companies that are most indebted create the greatest risk to your future wealth.

In many of my articles I ask a question. It is “What is the VALUE of a promise that cannot, or will not, be kept?”

I believe this is a key question when we see that virtually anywhere you look- national debt, state debt, local debt, corporate debt and personal debt all look to be unsustainable in most cases.

It is not a surprise to me that most of the world is moving away from using the US dollar as the reserve currency. While I am sure that sanctions on Russia sped up the process, I am sure that most world leaders who get a look at our balance sheet (the one they let us see) it is glaringly obvious that we cannot repay what we are promising with our currency retaining anywhere near its value.  This doesn’t even take into account off-balance sheet items like Social Security, Medicare, Prescriptions, Wars, etc. that are off-balance sheet items. There are estimates that our unfunded liabilities are as high as $220 TRILLION. My guess is that is probably on the low side. Let’s also keep in mind that we are running a budget deficit of $1.5 TRILLION (that they admit to- likely FAR higher when wars are added in- which they are NOT in “official” numbers) so instead of paying down the debt we are going deeper and deeper into the abyss.

Let’s also keep in mind that foreigners (the main buyers of our debt in the past) are shying away from our new debt. This leaves FEW options other than to have the Fed buy the debt of the government. This is called monetizing the debt and has proven to be inflationary 100% of the time throughout history. BE READY.

In doing research for an article a few years ago I looked at Weimar Germany and how they destroyed their currency- the Deutsch Mark in the late 1910s and early 1920s. After World War 1 at the Treaty of Versailles the Germans were loaded down with massive war reparations. The only way they could pay was to “print up” the “money” and pay it. In other words, print money up out of nowhere and pretend that they earned it. The unsettling part for me was that I saw a loaf of bread in 1914 was around .13 (I am using dollar terms, but it is Deutsch Marks) By 1919 the price was .26. By 1920 the price was 1.20. By mid- 1922 it had risen to $3.50. By December 2022 it was 700.00, by spring 1923 it was 1200.00 and by September 1923 it was 9 MILLION. By the way, one month later it was 670 MILLION. Sounds impossible? It is history- not conjecture. I find an interesting correlation to our own price of bread right now.

I would also like to point out that the seeds of this crisis were sown in 1914 when the Germans abandoned the gold standard that they put in place in 1873. We did that in 1971. This frees the central bank to “print” money in unlimited amounts since there is nothing needed to back it up with. In 1918 Germany lost the war and was in economic ruin. We haven’t won a war since WW2 and we are most certainly in an economic freefall. In 1921 the Allies make reparations 6.6 BILLION pounds. This led to massive money printing and debasing of the currency. We are currently not even in any declared wars but are spending as if we were. Actually, when we figure out our financial wars we are spending like no one has ever seen. In 1923 the reparation payments stop- France invades and Germans stop working. This led to a fall in government revenue and the need for more printing. Are you seeing how many Americans have given up on working? Have you seen the recent layoff notices? There are FAR too many similarities to ignore.

If we were to see ANYTHING like that here- even a fraction of it- will it really matter how many dollars you have if things get so out of hand that only the uber-rich could survive?  Could this be the reason that billionaires and banks are buying record amounts of gold now and in the past few years?

It has happened in MANY other places and it is always the same scenario. The economy sinks. Politicians want to stay in power, so they don’t want to raise taxes but still need to hand out freebies. Money gets “printed” without creating ANY value of any kind. This dilutes the value of every other currency unit in existence. Once critical mass is hit you can see that things can happen in lightning quick ways.

Years ago, the Zimbabwe Dollar was worth more than the US dollar. In a matter of years, the entire population of Zimbabwe were BILLIONAIRES. While that might sound sexy you might want to know “the rest of the story”. It cost a trillion Zimbabwe Dollars for 3 Eggs a few years ago. If conjuring up cash out of nowhere created wealth then Venezuela, Argentina, Zimbabwe and all these places would be shining examples. Unfortunately, they are an example alright- but as a warning. Not as a roadmap.  Too bad our “leaders” are using them as a roadmap!

Any opinions are those of Mike Savage and not necessarily of those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. The information in this report does not purport to be a complete description of securities, markets or developments referred to in this material. The information has been obtained from sources deemed to be reliable but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.

Commodities are generally considered speculative because of the significant potential for investment loss. Commodities are volatile investments and should only be a small part of a diversified portfolio. There may be sharp price fluctuations even during periods when prices are overall rising.

Precious Metals, including gold, are subject to special risks including but not limited to: price may be subject to wide fluctuation, the market is relatively limited, the sources are concentrated in countries that have the potential for instability and the market is unregulated.

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